How’s the Patient? U.S. Economy Said to be Recovering
February 23rd, 2010They say the recovery has begun. Before you start post recession celebrating however, you had better take a long, hard look at what’s going on.
According to a recent article in the Wall Street Journal blog “Real Time Economics,” the country’s gaping 10% unemployment figure is going to take much longer to rebound.
This is because companies need to see more steady cash in hand before they feel comfortable beginning to hire again. But there’s another dynamic as well.
Companies have learned to do more with less. The reality is that many of the jobs that have been lost will never be recovered. The likelihood is that with this permanent loss of jobs, employment statistics will never be the same. There will simply be fewer jobs to spread around.
This of course in turn has a long lasting effect on the economy, and its ability to recover. With so many former employees sitting on the sidelines, disposable income is clearly less than it had been. Not only are there fewer people available to spend money—particularly on non-essential items—but people are generally spending less.
A full recovery will be difficult under those conditions.
Some positive data comes from Reuters, which reported on Feb. 1 that consumer spending was up “slightly” in December 2009 and that incomes had gone up for the “sixth straight month in a row.” This fact, however, is mitigated by the fact that corporate profits are down.
Why? Many manufacturers cut prices deeply to drive spending, reducing the profit on each unit sold. So even though the strategy worked—spending increased somewhat—the companies actually made less money than they usually do.
And because corporate spending is a key factor in the overall economic recovery, once again, a full recovery is unlikely at this time.
What does all of this mean? Unemployment is probably going to lag for quite some time, maybe a year or more, before we can as a country say that we’ve truly “recovered” from The Great Recession. With roughly 3 million people expected to face foreclosure actions in 2010, things aren’t exactly looking easy for homeowners in the near future. It’s a financial cataclysm of epic proportions, the greatest meltdown since the 1930’s.
On top of this is the fact that the federal stimulus package, combined with two costly and ongoing wars, has driven the federal deficit to record highs.
In other words, the recession might be over—on paper at least—but it doesn’t really look like the recovery has really begun.
As we work ourselves into the future, we may want to take a collective look at exactly how the financial class was allowed to get so out of control and take action to stop the boom and bust cycle that we seem to have fallen into.
